OFFICIAL MASTER'S DEGREE IN THE
ELECTRIC POWER INDUSTRY
Master’s Thesis
UTILITY-SCALE APPLICATIONS
OF ENERGY STORAGE
Author:
José Javier Rueda Montes
Supervisor:
Dra. Alezeia González García
Madrid, July 2019
UNIVERSIDAD PONTIFICIA COMILLAS
Official Master's Degree in the Electric Power Industry (MEPI)
Master’s Thesis Presentation Authorization
THE STUDENT:
JOSÉ JAVIER RUEDA MONTES
……….
THE SUPERVISOR
DRA. ALEZEIA GONZÁLEZ GARCÍA
Signed:
Date: 08/ 07/ 2019
THE CO-SUPERVISOR
Signed: ……… Date: ……/ ……/ ……
Authorization of the Master’s Thesis Coordinator
Dr. Luis Olmos Camacho
OFFICIAL MASTER'S DEGREE IN THE
ELECTRIC POWER INDUSTRY
Master’s Thesis
UTILITY-SCALE APPLICATIONS
OF ENERGY STORAGE
Author:
José Javier Rueda Montes
Supervisor:
Dra. Alezeia González García
Madrid, July 2019
UNIVERSIDAD PONTIFICIA COMILLAS
Summary
The solutions for a great deployment of Renewable Energy Sources are currently under discussion. Energy storage is presented as a great opportunity, but it is crucial to analyze the characteristics and applications of storage technologies to avoid system inefficiencies when drafting a suitable regulation framework.
In this document, the main factors which affect the development of an efficient role for storage have been analyzed and some promising business models are proposed.
First of all, the definition of energy storage is studied. The existing technologies are presented and a brief analysis of the economic aspects of storage is developed in order to focus the business models on the most developed and least costly ones. Lithium-ion batteries are currently the most cost efficient technology thanks to the economies of scale achieved by the automotive industry, which is the main driver for their development. Also, these batteries present good characteristics when analyzing power and energy rates and response time.
Then, the applications for energy storage technologies are described and analyzed. Several classifications are studied and finally a suitable one is proposed according to the opportunities to create value and generate business. Lithium-ion batteries can serve all the applications analyzed for electric systems except the long-term ones. Therefore, these batteries are chosen to develop the business models that are the focus of the thesis.
The value chain of battery production is studied in detail in order to identify possible risks that might affect the agents participating in this market as well as the maturity of it. While the mining of the raw materials and battery production is focused in Asia, the final consumption of batteries is more spread (America, Europe and Asia).
Later, an analysis of the regulation around key issues is developed. The present market design presents many barriers to the entrance of storage in it since it is not technology neutral. Storage is presented as a solution for electric systems in the long term (capacity mechanisms), daily scope (day ahead market) and short term (balancing and reserves). Also, the ownership of storage assets is discussed, which might favor the appearance of dedicated business models. Finally, some insights are given related to tariff design in order to reduce the existing barriers.
Finally, with all the information gathered about technologies, applications and regulatory issues, some promising business models that create value are studied. Three of them - Hybrid Power Plant, Active Customer and Local Markets - are developed in detail due to their current feasibility and interest for the utility sector. For these business models a case study is analyzed from a qualitative perspective. The Hybrid Power Plant business model focuses on supporting power plants to provide services to the system as frequency regulation. Active Customer enables clients to manage their consumption and as a result reduce their electricity bill cost. Local Markets is presented as an alternative for DSOs to own storage assets by acquiring services from private owned batteries.
The conclusion obtained is that, although there is still a great margin for development for storage technologies, currently there are solutions in the market that might allow to introduce efficiencies in the system with the appropriate regulatory framework.
Acknowledgment
To my family, for all the support and faith that they have always put in me.
To my beloved friends, for all the moments we have shared together this last year in which we have been able to disconnect from the daily routine.
To my supervisor, Alezeia, for all the patience and dedication you have shown me.
To ICAI, for the values and knowledge that they have managed to make me a better person and a better engineer.
Table of Contents
1 INTRODUCTION ... 1
2 WHAT IS ENERGY STORAGE? ... 3
2.1 DEFINITION ... 3
2.2 TECHNOLOGIES ... 3
2.3 ECONOMIC ASPECTS ... 13
3 APPLICATIONS ... 17
3.1 INTRODUCTION... 17
3.2 TIME SCOPE CLASSIFICATIONS ... 17
3.3 BENEFICIARY RELATED CLASSIFICATIONS... 18
3.4 USE RELATED CLASSIFICATIONS ... 18 3.5 PROPOSAL ... 21 4 MARKET DYNAMICS... 23 4.1 INTRODUCTION... 23 4.2 RAW MATERIALS ... 23 4.3 BATTERY CELLS ... 26 4.4 BATTERY MODULES ... 27
4.5 FINAL CONSUMER APPLICATIONS ... 28
5 REGULATION POLICIES ... 31
5.1 MARKET DESIGN ... 31
5.2 OWNERSHIP... 32
5.3 NETWORK CODES ... 32
5.4 TARIFF DESIGN ... 33
5.5 BATTERY MARKET CREATION ... 34
6 BUSINESS MODELS ... 35
6.1 INTRODUCTION... 35
6.2 HYBRID POWER PLANT ... 36
6.3 ACTIVE CUSTOMER ... 39
6.4 LOCAL MARKETS ... 44
6.5 OTHERS ... 46
7 CONCLUSIONS ... 49
Figure index
FIGURE 1:OVERVIEW OF ENERGY STORAGE TECHNOLOGIES [4] ... 4
FIGURE 2:CHARGE/DISCHARGE PROCESS IN LI-ION BATTERIES [5] ... 5
FIGURE 3:CHARGE/DISCHARGE PROCESS IN LEAD-ACID BATTERIES [5] ... 5
FIGURE 4:CHARGE/DISCHARGE PROCESS IN A FLOW BATTERY [5] ... 7
FIGURE 5:WORKING PRINCIPLE OF PUMPED HYDRO STORAGE [5] ... 8
FIGURE 6:WORKING PRINCIPLE OF COMPRESSED AIR ENERGY STORAGE [5] ... 8
FIGURE 7:SCHEME OF POWER-TO-HYDROGEN STORAGE [5] ... 9
FIGURE 8:AMMONIA PRODUCTION SCHEME [5] ... 10
FIGURE 9:SOLAR THERMAL POWER PLANT WORKING PRINCIPLE,[6]... 11
FIGURE 10:BASIC EDLC DESIGN [5] ... 11
FIGURE 11:CLASSIFICATION OF ENERGY STORAGE TECHNOLOGIES BY CAPACITY AND DISCHARGE TIME [3] ... 12
FIGURE 12:LEVELIZED COST OF STORAGE ($/MWH),[7]... 14
FIGURE 13:LEVELIZED COST OF STORAGE ($/KW-YEAR),[7] ... 14
FIGURE 14:CAPITAL COST OUTLOOK BY TECHNOLOGY,[7] ... 15
FIGURE 15:ENERGY STORAGE APPLICATIONS CLASSIFICATION ... 22
FIGURE 16:VALUE CHAIN OF THE PRODUCTION OF BATTERIES ... 23
FIGURE 17COUNTRIES ACCOUNTING FOR LARGEST SHARE OF GLOBAL PRODUCTION OF BATTERY MATERIALS,[12] ... 24
FIGURE 18:MINE PRODUCTION AND POTENTIAL OF BATTERY RAW MATERIALS,[12] ... 25
FIGURE 19:METAL PRODUCTION FOR BATTERIES,[12] ... 25
FIGURE 20:LITHIUM-ION BATTERY PRICES: PACK AND CELL SPLIT,[13] ... 26
FIGURE 21:LITHIUM-ION BATTERY PRICE OUTLOOK,[13] ... 26
FIGURE 22:ANNUAL GLOBAL STORAGE DEPLOYMENTS,BLOOMBERG ... 28
FIGURE 23:ENERGY STORAGE REVENUES AT UTILITY-SCALE,[7]... 28
FIGURE 24:EV SALES BY COUNTRY IN 2018 ... 29
FIGURE 25:LOAD PROFILE FOR A REGULAR CONSUMER ... 43
FIGURE 26:LOAD PROFILE FOR AN ACTIVE CONSUMER ... 43
Table index
TABLE 1:SUMMARY TECHNICAL CHARACTERISTICS OF STORAGE TECHNOLOGIES ... 12TABLE 2:ENERGY STORAGE CLASSIFICATION ACCORDING TO EASE&EERA,[4] ... 19
TABLE 3:BATTERY CELL PRODUCERS WORLDWIDE ... 27
TABLE 4:HYBRID POWER PLANT.SCENARIO 1 ... 36
TABLE 5:HYBRID POWER PLANT.SCENARIO 2 ... 37
TABLE 6:ACTIVE CUSTOMER.SCENARIO 1... 40
1
1 Introduction
The European Union has committed to decrease the emissions of CO2 a 40% by 2030 [1], not only in the electricity sector but in the energy sector, which includes transportation and industry sectors. Moreover, the Directive reflects a commitment on achieving a 32% share of renewable energy in the technology mix. The decarbonization process requires a transition from thermal to renewable sources of energy. This is the reason behind the increase in Renewable Energy Sources (RES) capacity installed in the electricity sector and the development of the electromobility in the transportation sector. However, renewable generation introduces some complexity in the operation of the system and does not bring stability to it. The objectives proposed for 2030 in Europe are aligned with the energy policy trends in other systems worldwide, such as California and Japan, in which a great deployment of renewable sources is needed.
Some problems regarding high renewable energy penetration may arise: a remarkable example is the difficulty to manage the intermittency of the generation. An interesting solution for this problem is to manage and control the new flexibility resources to match the generation available at any temporal horizon given, from real time operation to long term planning [2]. Energy storage is a key technology to control power systems, as it allows to save the surplus of energy generated and consume it when necessary. Currently, the most promising and flexible storage technology are batteries. However, more storage technologies should be considered in the future according to different energy storage applications to search for the most cost efficient one.
The business models chosen in order to solve the problems that a great deployment of Renewable Energy Sources may cause are currently under discussion. Energy storage is presented as a great opportunity, but it is crucial to analyze the characteristics and applications of this technology to avoid system inefficiencies when drafting the regulation frameworks.
Hence, the motivation of this thesis is to study the storage applications that present feasible and efficient opportunities to propose the business models that may be developed related to this technology and afterwards, to analyze the regulatory barriers and best practices currently present in electric systems.
The main objective of this thesis is to define some business models related to batteries and study the main regulatory aspects that might affect them.
In addition, some specific objectives can be inferred to fulfill the thesis goals:
- Assess the value of energy storage in the current electric systems taking into account all applications.
- Provide business ideas to facilitate the introduction of energy storage in electric systems.
- Analyze a set of regulatory measures to promote energy storage and reduce the barriers found, in some regions of interest.
First of all, section 2 presents the main technologies that currently allow to store energy, technical and economic aspects are analyzed. Secondly, section 3 presents the applications of energy storage will be discussed, with a focus in batteries, in order to learn how to create value with them. Then, in section 4 some insights of the market dynamics currently taking place will be given. Following, section 5 presents some regulation policies will be studied in order to determine which are the main regulatory barriers of
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energy storage. After that, in section 6 , the business models are presented from the Utility perspective. The value proposition, the key partners, main sources of revenue and regulatory aspects are analyzed for the most important ones. Finally, section 7 presents the conclusions achieved as well as the main contributions from the author and the future work to be carried out.
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2 What is energy storage?
In this section, the definition of energy storage is studied. Later, the existing technologies are presented and a brief analysis of the economic aspects of storage is developed. The main objective of this section is to set the current discussions about storage and clarify them in order to be able to develop a sound analysis in the next sections.
2.1 Definition
Although the definition of energy storage is currently under discussion, the European Commission has proposed the following one, which can be used as a standard [3]:
“Energy storage is deferring an amount of the electricity that was generated to the moment of use, either as final energy or converted into another energy carrier.” To some extent, energy storage consists of energy transfers from electricity to other energy states. As a result, it is very important to define the limits of which technologies are considered storage and which not. For example, pumped hydro storage is based on the transfer from electric energy to potential energy and batteries transform the chemical energy of their components into electricity. These technologies and more will be explained later.
The discussion for a common definition for energy storage is mainly caused by these limits since there are conflicts of interest between the different stakeholders (companies, governments, …) affected.
It is important to highlight that the definition of energy storage is the first and most important step to design an appropriate regulation that may or may not enable agents to benefit from this already existing technology, energy storage.
This thesis proposes that, among other issues, the appropriate definition of energy storage should take into account these principles:
- Time and location deferring. The basic principle of energy storage is the deferring of electricity supply to the moment of use, as the EC says. In addition, there are some applications, especially electromobility that introduces location deferring as a key principle.
- Technology neutrality. In order not to favor some technologies and avoid a loss of competence and opportunities.
- Efficiency. Energy storage should promote the most economic efficient technology for each solution.
2.2 Technologies
Hereunder, storage technologies are classified according to their operating principle although there are plenty of different classifications available. In addition, the strengths, weaknesses and some cost insights of each technology will be briefly explained.
The most common classification [4] includes five categories: mechanical, thermal, electrical, electrochemical and chemical storage, as seen in Figure 1. However, the technologies included in each category may vary and they are not fixed since the classification changes according to the evolution and research in progress.
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The main variables to be analyzed are the size of storage, through power and energy rates, the time of response and the cost of these technologies.
Figure 1: Overview of energy storage technologies [4]
2.2.1
Electrochemical
These technology is included in systems, which are commonly called batteries. In batteries, chemical energy is stored and converted to electricity and vice-versa in electrochemical reactions. They generally have very fast response times and are suitable for short term applications. However, they present some limitations since the fast reaction rates might erode the active materials transforming them in secondary components non reversible.
Hereunder, the most developed technologies are presented. These technologies are Lithium-ion, Lead acid, NaS and flow based. The global challenge is to develop chemistries based on abundant materials as Al and Si, with the appropriate characteristics.
2.2.1.1 Lithium-ion batteries (Li-ion)
A Lithium-ion battery is a storage system based on electrochemical reactions that happen between a positive electrode and a negative one. The positive electrode is called cathode and contains a metal oxide while the negative electrode is called anode and is made of carbon materials. The electrodes are separated by polymeric materials which allow the electrons to flow.
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Figure 2: Charge/discharge process in Li-ion batteries [5]
Since it is one of the most developed technologies of electrochemical storage for electric systems, it is present for high and low power and energy ranges. The discharge time varies from minutes to hours while the reaction time is very short, some milliseconds. The efficiency of Li-ion batteries can achieve a maximum of 98% at room temperature [5]. Thanks to the mass production of batteries for the automotive and energy markets the costs will be reduced in the future. It is very important to differentiate clearly from the cost of the battery cells and the cost of the battery solutions, which also include the cost of the control systems, communications and even administrative costs. Technology improvements will be focused in improving energy density and lifetime.
2.2.1.2 Lead-acid batteries
Lead-acid batteries are also storage systems based on electrochemical reactions between a cathode and anode. In this case, the cathode is made of lead dioxide and the anode of lead and they are built in an sulphuric acid electrolyte.
Figure 3 shows the charging and discharging scheme for this technology.
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Lead-acid batteries are one of the most mature and cheapest storage technologies. These batteries are widely used as car starters for combustion vehicles. The discharge time range is wide, from minutes to 20 hours, and as other battery technologies, their reaction time is very short, milliseconds [5].
Although it is the oldest technology, there is room for technical improvement. The use of new materials can increase the specific power rates and will help increase the cycle life too. The challenge is presented when using this technology for cycling purposes, since currently Lead acid batteries are only used for supplying current peaks during the engine start of vehicles.
2.2.1.3 Sodium Sulphur batteries (NaS)
In Sodium-Sulphur batteries, the cathode is made of molten Sulphur and the anode of molten Sodium. The electrodes are separated by ceramic sodium which only allows charged sodium ions to pass through. In order to maintain the electrodes in a molten state, temperature is kept around 300° C with independent heaters.
Sodium Sulphur batteries have similar nominal power values and discharge times as Lithium-ion batteries, the most common ones.
This technology is very dangerous due to the high fire risk it presents. Safety is enhanced by implementing a great number of measures such as fuses, insulation boards and firefighting measures [5].
2.2.1.4 Flow batteries
Flow batteries do not use the same principle as the rest of batteries explained before. Flow batteries use two liquid electrolytes, one positively and the other one negatively charged, which are separated by a membrane. The ions pass through the membrane and complete the chemical reactions.
The key characteristic of this technology is the complete decoupling between power and energy ratings. On the one hand, the power rate is determined by the size of the membrane that allow the reactions. On the other hand, the energy rate is determined by the size of the electrolytes tanks. Thanks to this, the capacity of flow batteries can be easily increased by increasing the size of the tanks who store the electrolytes that are pumped into the battery.
Several combinations of chemicals are possible for these batteries. The most common ones are Va and Zn-Br. In lower Technology Readiness Levels, Zn-air and Al-air chemistries can be found but, as said, they are not well developed yet.
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Figure 4: Charge/discharge process in a flow battery [5]
2.2.2
Mechanical
These technologies store energy in various forms of kinetic or potential energy. The main ones are Pumped Hydro Storage, which is currently the most deployed form of storage worldwide and Compressed Air Storage which, on the contrary, is on research.
2.2.2.1 Pumped Hydro Storage (PHS)
Pumped Hydro Storage (PHS) stores electrical energy by utilizing the potential energy of water. Water can be pumped and stored in an upper reservoir when prices are low or when there is high availability of electricity. On demand, water can be released through a conventional hydro turbine and transformed into electricity.
Generally speaking, PHS is the most mature storage concept in respect of installed capacity and storage volume. There are over 170 GW of pumped storage capacity in operation worldwide. Opportunities are mostly focused on mountainous regions in Switzerland, Austria, Germany, Spain and Portugal.
Pumped Hydro Storage characteristics depend on the reservoir and the hydro power plant associated. This technology can provide peak power up to GWs and store GWhs of energy, which provides a very interesting solution for long term storing. The main disadvantages are the low efficiency and the high environmental costs associated to the construction of the upper reservoir [5]. However, if the upper reservoir already exists from natural sources, the costs and environmental impact are reduced considerably.
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Figure 5: Working principle of Pumped Hydro Storage [5]
2.2.2.2 Compressed Air Energy Storage (CAES)
Compressed Air Energy Storage systems are very similar to Pumped Hydro Storage, but these systems store compressed air in underground caverns instead of water in reservoirs. The caverns usually are located at hundreds of meters below the ground. When electricity is needed, the air is used in a turbine to produce energy.
Figure 6: Working principle of Compressed Air Energy Storage [5]
CAES systems are in the process of demonstration and are not yet commercially available. Projected units will have a storage capacity of 10 GWh and generate electrical power of about 200 MW [5].
2.2.2.3 Flywheels
Flywheels work by accelerating a rotor to a very high speed and maintaining the energy in the system as rotational energy. When energy is extracted from the system, the flywheel's rotational speed is reduced as a consequence of the principle of conservation of energy. Flywheels commonly use electricity to accelerate and decelerate the rotor of the system. However, flywheel devices that use mechanical energy instead of electricity to move the rotor are being currently developed.
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2.2.3
Chemical
These technologies store energy in chemicals that appear in gaseous, liquid or solid form and energy is released in chemical reactions. Chemical storage is based on Hydrogen production, which can be further processed into ammonia, methane or methanol.
2.2.3.1 Hydrogen & Power-to-Gas
This technology works thanks to the electrolysis process, in which electricity is used to produce hydrogen and oxygen from water. The oxygen is released and the hydrogen stored. Then, electricity is generated on demand by combining hydrogen with oxygen in the so-called fuel cells or in gas turbines.
The three main final uses of the hydrogen obtained are the chemistry industry, the automotive industry and the injection into the gas grid, as hydrogen or methane. This technology is very useful when associated with renewable power plants since it allows to avoid curtailments and store the surplus of production by injecting it into the gas grid. The decarbonization of the energy sector usually is associated with an electrification of the systems. However, it is very challenging to be able to electrify the big consumers and degasify industries. Power-to-Gas allows to produce a clean gas through the curtailments of renewable plants therefore decarbonizing these industries that rely heavily on gas. The main unique characteristic of Power-to-Gas is that its discharge time varies from hours to several weeks, which makes it a great solution for long term storage applications. In addition, it provides wide ranges for power and energy values, up to several GW/GWh. However, the reaction time is slow, a few minutes, so this technology may not be appropriated for fast response applications [5].
Figure 7: Scheme of Power-to-Hydrogen Storage [5]
There are more technologies existing under the Chemical classification that take advantage of the Hydrogen produced in Power-to-Hydrogen storage, when the Hydrogen is not reused to produce electricity.
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2.2.3.2 Ammonia
In Power-to-Ammonia storage, Hydrogen is produced by water electrolysis while Nitrogen is got through an air separation unit. Both gases are converted to Ammonia by using a chemical reaction.
The scheme is shown in Figure 8.
Figure 8: Ammonia production scheme [5]
It is very important to mention that, according to the definition of energy storage, some authors do not include Power-to-Ammonia or other technologies as Power-to-Methane as energy storage since the products obtained are not used to produce electricity in the future. Energy storage is defined as deferring the electricity produced from the moment of use. These technologies take advantage of the excess of renewable production, to avoid curtailments and produce Ammonia and Methane with them.
2.2.4
Thermal
These technologies store heat, which is generated from electricity by heat pumps or boilers and stored in different materials. Then heat can be converted into electricity again through turbines.
As before, when talking about Power-to-Heat it is very important to realize that when the heat produced is not used to produce electricity again, it is not clear that it can be called energy storage. It depends on the limits proposed on the definition of energy storage. For example, in a household system without storage, usually electricity is used for comfort applications. In this situation, a Power-to-Heat solution may only be accepted as storage if the heat obtained is later used for comfort applications.
However, there are applications in which the heat stored is used to produce electricity again. Solar thermal power plants work on this principle by heating molten salts during the day that are then used to produce electricity when the solar resource is not available.
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Figure 9: Solar thermal power plant working principle, [6]
The existing technologies related to Power-to-Heat are briefly explained below:
- Sensible thermal storage relies on increasing the temperature of a material that returns a large share of heat when cooled.
- Latent thermal storage relies on the energy absorbed or released during a phase change in a material with a small temperature range.
- Thermo-chemical storage uses chemical components, which store heat through changes in their chemical bonds. The chemical reactions are reversible to recover the heat when necessary.
2.2.5
Electrical
– supercapacitors
Electrical storage is considered the only pure electricity storage since it stores energy in the form of electrons. In contrast to batteries, only electrostatic effects are used for the storage of the electrical energy.
The most developed technology in this category is the Electrochemical Double Layer Capacitor (EDLC), which is based on the electrostatic effects between two separated carbon electrodes.
Figure 10 illustrates the working principle of the Double Layer Capacitor.
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The electrical storage is able of providing a high power output during a very short response time. The discharge time is very low so it is a great technology for very short-term storage applications. In addition, the efficiency is very high, up to a 90% [5].
2.2.6
Summary technological indicators
Figure 11 shows the classification of the different technologies according to their storing size (kWh) and their discharge time (s).
Figure 11: Classification of energy storage technologies by capacity and discharge time [3]
Table 1 shows the main technical characteristics of the technologies analyzed before.
Technology Max * power
Max * energy
Efficiency Time response Energy density
Lithium-ion batteries
50 MW 100 MWh 90-98% Milliseconds 180 Wh/kg
Lead acid batteries Some MW 10 MWh 75-85% Milliseconds 35 Wh/kg NaS batteries 50 MW 400 MWh 70-80% Milliseconds 206 Wh/kg Flow batteries Some MW Some
MWh
70-75% Milliseconds 25 Wh/liter
Pumped Hydro 3 GW 100 GWh 70-85% Seconds-minutes
3 Wh/kg
Power-to-Gas 1 GW Some GWhs
20-40% Minutes 2550 kWh/m3
Supercapacitors Some MW Some kWhs
90% Milliseconds 7 Wh/kg
Table 1: Summary technical characteristics of storage technologies
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2.3 Economic aspects
Although some storage technologies are still being developed and research is being carried out, it can be said that the technology is mature from a technical point of view. However, from an economical point of view, the technology may not be ready to be implemented. The most important indicator to analyze the cost of an storage technology is the LCOS, Levelized Cost of Storage. LCOS may seem similar to the Levelized Cost of Electricity (LCOE) but it does not represent the same concept since both activities, storage and generation, are radically different. The LCOE represents the average cost per unit of energy produced and the LCOS focuses on the use of the energy stored, since not always participates in the energy markets.
The definition of LCOS is under discussion, mainly because it is a new concept and it cannot be defined until storage or the possible applications it may serve are well defined too. The cost of the storage depends on the technology and on the application it serves, that is why some authors talk about an indicator based on capacity (€/kW) and another based on energy terms (€/kWh).
Although the formula for calculating the LCOS is under discussion and depends on the author consulted, it is simplified as the following:
𝐿𝐶𝑂𝑆 =𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 + 𝐸𝑛𝑒𝑟𝑔𝑦𝐸𝑛𝑒𝑟𝑔𝑦 𝐼𝑁 ($)
𝑂𝑈𝑇 ($)
Which represents an income for the amount of energy discharged (Energy out) and a cost for the energy charged (Energy in) and the capital cost.
The LCOS varies according to the application the storage asset is used for, since the costs for charging and the revenues obtained vary as it will be explained in the next section. The consultancy firm Lazard [7], carries out every year since 2015 a study analyzing the evolution of the LCOS for several storage technologies. This study is based on industrial and commercial solutions with empirical data of revenues and costs. Although it is not based on a formula or calculations, it provides a very illustrative snapshot of the market situation.
As it can be seen in Figure 12 and Figure 13, the scenarios analyzed in 2018 have been different battery technologies in what they call “In front of the meter” and “Behind the meter” applications. The most economically efficient solution are Lithium-ion batteries for utility-scale applications followed closely by the new technology of flow batteries based on Zn-Br.
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Figure 12: Levelized Cost of Storage ($/MWh), [7]
Figure 13: Levelized Cost of Storage ($/kW-year), [7]
Figure 14 shows the evolution of the capital cost of these technologies. As it can be seen, the capital cost of batteries is experiencing a reduction trend, which is more acute for Lithium-ion and Flow Zinc batteries. The main reason for this cost reduction is the presence of economies of scale in the production of Li-ion batteries due to the research and great development carried out by leading agents in stationary applications and electromobility. The formulation of enabler regulation for the development of battery markets is also a remarkable driver for the technology development.
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Figure 14: Capital cost outlook by technology, [7]
In the next section, the applications of energy storage will be analyzed focusing on electrochemical storage, most known as batteries, and the reasons why they are being developed so fast.
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3 Applications
3.1 Introduction
Currently, the applications of these technologies and their classification are also under discussion. The stakeholders mentioned in the previous section, utilities, governments, regulators…, present different classifications according to their interests and their geographical influence. In some regions some applications are more interesting than others mainly due to the design of the power systems.
In order to design an appropriate regulation that allow energy storage to compete against conventional technologies, it is a key factor to analyze which are the applications of storage to be efficient and technology neutral.
The objective of this section is to define a common classification that makes sense for every stakeholder of the sector, and it will be done according to several criteria.
The existing classifications divide them according to three main factors: - Time scope: short-term, daily or long-term.
- Beneficiary: agents or the system. - Use: energy or power.
In this section, the applications for energy storage technologies are described and analyzed. The main focus of this section is to present the proposals present in the literature and reformulate the classification according to the opportunities to create value and generate business. Also, it tries to clarify the common points and resolve the possible overlaps among them.
3.2 Time scope classifications
IRENA [8], the International Renewable Energy Agency, defines the different time scopes as the following:
- The short term storage relates to applications in which the charging and discharging [8] happen between seconds and a few minutes. For these applications, high power technologies are well suited, such as electricity storage systems or mechanical flywheels. Li-ion batteries are also presented as a good solution.
- Daily storage is defined as applications in which charging and discharging processes occur between minutes to several hours. The most appropriated technologies for these applications are electrochemical batteries, as well as, pumped hydro storage and compressed air storage.
- The long term storage features applications in which energy is stored for weeks or months, that is why it is also called seasonal storage. The most common technologies for storing energy long periods of time are power-to-gas, which relies on gas storage systems, or pumped hydro storage, which relies on the high reservoir capacities. Also, flow batteries will allow for weekly storage as investment costs are being reduced. According to the WEC [9], these technologies will allow applications such as bridging periods with low renewable production to high ones.
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3.3 Beneficiary related classifications
Secondly, the beneficiary variable will be analyzed, that is, who is the stakeholder that benefits from the storage technology. The institution IRENA [8], mentioned before, states three groups of applications:
3.3.1
System operator: grid services
With the decrease of thermal power plants and the lack of inertia associated, services such as frequency control have to be provided by the new agents entering the market, essentially renewable energy sources and energy storage. The main characteristics needed to participate in grid services are fast response times and great scalability, then making battery storage systems a great candidate for these applications.
3.3.2
Final consumers: behind-the-meter applications
These applications relate to self-consumption through distributed generation from storage systems. The main objective of these applications is to reduce the electricity bill by reducing the amount of energy consumed from the network. Energy storage systems allow for peak shaving and valley filling in order to level the load curve and shifting the electricity grid consumption from the expensive hours to the cheap ones.
3.3.3
Isolated consumers: off-grid applications
Energy storage, alongside with renewable energy sources, is being used to replace diesel generators in off-grid areas, usually rural places or islands where there is no access to the grid. Storage systems allow a clean energy supply for remote locations by reducing the emissions and noise from diesel generators.
3.4 Use related classifications
However, this classification fails to define the sector in which energy storage technologies can be applied, which can lead to wrong conclusions when dealing with liberalized and regulated businesses. For this reason, the last analysis will take into account the use variable, which basically divide applications into power or energy applications. In power applications, the most important characteristic of the technology is the ability to provide a great peak of power during a short time. However, in energy applications, the key ability is to provide energy during a long time, no matter which is the peak provided.
In this context the EASE and EERA published a Roadmap in 2017 [4] explaining the existing applications at that time. As said before, since this market is being shaped and it is not mature enough, this classification is considered to be outdated. However, for the purpose of explanatory reasons, the classification from 2017 will be analyzed.
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Generation System Operation
Transmission Distribution Retail
Ancillary services Ancillary services Congestion (avoid redispatch)
Voltage control Peak shaving (kW)
Arbitrage Congestion management Time-of-use management (arbitrage) Capacity firming O&M Self-production (PV) Microgrids Microgrids Quality service
Table 2: Energy storage classification according to EASE & EERA, [4]
As seen in Table 2, the analysis by EASE-EERA defines applications for each of the sectors of the value chain for electricity production.
3.4.1
Generation
For the generation sector, both conventional and renewable energy sources but especially RES technologies, the main applications that provide a value to the agent are the arbitrage, the participation in remunerated ancillary services and the capacity firming.
Arbitrage consists on taking advantage of a price difference in a market to buy when the price is low and sell when it is high. In the specific field of electricity, this practice is now possible because storage allows to buy, store and sell this electricity in the power wholesale market. It will be seen later, but this application is also viable for the final consumer since it also participates in the wholesale market through its retailer. For the same reason, TSOs and DSOs cannot benefit from arbitrage since they do not participate in the wholesale market as agents.
Capacity firming is especially focused in renewable energy sources, but even conventional generators can benefit from it. It consists on using energy storage to produce a constant output from a variable output, that is why it especially focused on wind and solar generation. Capacity firming allow these resources to reduce costs due to imbalances, which cannot be avoided due to the nature of the technology. These resources are open to variations in the wind or sun availability. It is important to notice that this application does not solve the problem of unavailability in the long term, but in the short-term.
The participation in ancillary services is strongly tied with the system operation sector, which sometimes makes it difficult to allocate this application. Renewable energy sources historically have not been able to provide ancillary services to the system operator. Nowadays, renewable technologies are able to participate in these services by providing downward reserve. However, with the support of storage, they are able to store some reserve energy that later can be provided as upward reserve.
3.4.2
System operation
The system operator can also benefit from energy storage, mainly because they can provide ancillary services. As said before, the benefits storage provide are very similar than to the generation sector. In this situation, the storage technology does not support a generator that participates in the ancillary services, but it is the storage technology who provides the service, and as a consequence, it is remunerated. Due to the nature of some storage technologies, a new service to provide frequency regulation is created [10] called Enhanced Frequency Response, which consists on an even faster response than the
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called Primary Regulation. To be fair with the definition of storage, which aims to give technology neutrality, every generation technology can participate in this new fast frequency regulation. In reality, due to the fast response times of energy storage, conventional generation is out of this market.
3.4.3
Transmission (TSO)
Transmission System Operators (TSOs) may benefit from storage in order to reduce congestions and manage them more efficiently to avoid market distortions. The installation of energy storage technologies at the transmission network level may help avoiding redispatches when transmission lines are congested. However, this application presents clearer benefits at the distribution level, since the technology to store great amounts of energy at the transmission voltage level is not well developed yet.
3.4.4
Distribution (DSO)
For the Distribution System Operators (DSOs), energy storage is presented as an asset that can provide voltage control, congestion management and quality service improvement. In addition, the application of storage to microgrids is quite interesting and it is quite related to the retail sector as well, so it will be analyzed in that sector.
The application of energy storage to congestion management allows to redirect the flows of energy in the network to avoid congestions and increase efficiency, as explained for the transmission network level. In addition, storage can help with the network control by controlling the voltage of the nodes, as it helps controlling the frequency at the transmission level.
When talking about quality service improvement, it is very important to remind that distribution networks are designed meshed to provide reliability to the system. The installation of energy storage devices along with distributed generation may allow to redesign the network in a radial configuration thus reducing the cost of breakers and control components and increasing the quality of service when a fault occurs. Also, batteries might be presented as a great alternative for diesel generators that are usually used during the clearing of a fault in the grid. Storage, altogether with distributed generation, might help to improve quality of supply by facilitating the operation of grids in island mode.
3.4.5
Retail
Currently, due to market dynamics, the retail sector is where storage is more present. The applications it has for the final consumer are very clear since they provide simple and transparent savings for the clients.
Storage provides peak shaving to the clients, which allow them to reduce their contracted capacity thus reducing their electricity bill costs. Peak shaving means to avoid the appearance of peaks in the load curves of consumers. Storage technologies use the excess of electricity stored to provide energy when peak demand appears, so from the point of view of the grid, the consumption looks flat.
However, the application that provides greater value to final consumers is arbitrage. As explained before, it empowers the consumers to manage their consumption and allocate it according to different hours of the day.
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Household consumers or industries with PV installations for self-consumption can also benefit from the storing capacity of these technologies, which allow them to avoid supply intermittency and even becoming prosumers who sell their energy excess to the grid. In microgrids, storage provides a great support for the generation units present, while providing congestion management. Since microgrids, by definition, are isolated from the network, storage technologies allow the management of the energy that flows in the microgrid.
3.4.6
Heating sector
In the European Energy Storage Roadmap published in 2017 by EASE and EERA [4], energy storage applications are divided into the electricity and heat sectors mainly. The great majority of applications apply to the electricity sector, as shown before. However, in the heat sector, which is not the focus of this thesis but it is important to mention, the applications include district heating system, in which storage is used to decouple electricity and heat generation or to overcome unexpected shutdowns, and industrial processes. Thermal energy storage in the industry allows guaranteeing the continuity of supply of heat produced from renewable electricity and flexibility in the operation of cogeneration plants. Last but not least, thermal energy storage can be used to increase the efficiency of industrial processes by storing the heat waste for electricity production.
3.5 Proposal
The classification proposed for this thesis will follow the criteria presented in the definition of storage and is presented in Figure 15.
First of all, energy storage applications should clearly differentiate between two sectors that are currently the ones driving investment and research in these technologies. These two applications are storage for electromobility and stationary applications, in which it can be seen a clear difference in the location deferral of energy generation and consumption. Although at first sight the limits between these two sector may look clear, great research is being carried out in the field of Vehicle-to-grid applications, which might be the boundary between electromobility and stationary applications.
Secondly, with a focus on the time scope, stationary applications should be divided between short-term, daily and long-term applications. As explained before, short-term ranges from seconds to minutes with a focus in power applications, daily includes power and energy applications from minutes to hours and long-term contains applications in which energy has to be stored from days to weeks or even months.
Short-term applications may include the support to generation assets by capacity firming or ancillary services, or even the participation of standalone storage in these services. Also, for the distribution system operators it can provide network control.
The daily applications are mainly focused in obtaining a benefit from the variable demand and market prices from arbitrage or peak shaving applications. For DSOs, storage is a very interesting solution to avoid congestions that may occur on a daily basis.
Finally, the long-term applications are focused on avoiding curtailments of renewable electricity by storing the excesses on technologies that allow for storing long times, such as Power-to-gas or Pumped Hydro Storage.
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Figure 15: Energy Storage applications classification
In the next section, the market dynamics of batteries are analyzed. The focus is on batteries since it has already been stated in this work that they are the most developed technology and present a wide range of applications, with the only exception of long-term storage.
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4 Market Dynamics
4.1 Introduction
In the previous section the applications of energy storage have been defined and explained in order to provide a better understanding of the possible sources of income from these technologies.
It is important to notice that currently the great majority of these applications are being driven by electrochemical storage technologies, more specifically, by Lithium-ion batteries. The reason behind this is that Li-ion batteries have been developed and optimized by the automotive industry which uses them for the Electromobility application, and also they present great characteristics (power, energy and reaction time) for short-term and daily applications. As said before, long-term applications need of Power-to-gas or mechanical storage technologies.
The production of batteries involves a great amount of agents who participate in it, from the extraction of the raw materials to the delivery to the final consumer, what is most known as the value chain. The value chain of batteries can be seen in Figure 16.
Figure 16: Value chain of the production of batteries
However, the value chain is not well defined yet, since the market is not developed yet. As an example, the number of companies that focus only in the pack manufacturing is very reduced. Due to the synergies between cells, packs and batteries, companies focus more on producing the whole product or just the cells rather than the packs alone.
In this section, the market dynamics of Li-ion batteries will be analyzed in order to understand how the economic and market aspects can affect the agents that will in the end benefit from energy storage.
4.2 Raw materials
Lithium-ion batteries are made of metals which are used for the cathode and anode parts and also chemicals or plastics used as electrolytes and separators. According to the different battery generations, the materials used for the cathode and anode change and evolve to more efficient configurations.
Currently, the most common materials for the battery cathode are LiNiCoMnO2, known as
NCM, and LiNiCoAlO2, known as NCA. The anode is composed of carbon and silicon. As
generations evolve, the ratio of Nickel increases, to provide a higher energy density to the battery cells, up to NCM 6:2:2 or NCM 8:1:1. Also, the anode evolves by including silicon to maximize performance and longevity [11].
The supply of these materials is ensured by three ways: the supply from external countries, the supply from domestic sources and the supply from recycled batteries [12].
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As it can be seen in Figure 17, the production of battery raw materials is very concentrated in a few countries. In particular, 64% of Cobalt comes from the Democratic Republic of Congo and 69% of graphite comes from China, which might give these countries a dominant position in the batteries market. Although the production of Lithium is more scattered, the majority of the world’s Lithium refining facilities are located in China, which ensures the dominant position it already has. This situation is far from the optimal since the provision of raw material is in hands of countries with a high geopolitical and humanitarian risk.
From the European perspective, the production of raw materials and its future potential is shown in Figure 18. As it can be seen, the domestic supply of raw material, with the exception of Cobalt, is very limited and might provide a supply risk for the battery industry. The key aspect is that producing the materials in Europe is not competitive due to the low prices from China and Latin America although the deposits exist and are potentially viable.
Finland presents itself as the major supplier of Cobalt, accounting for almost 66% of the whole production in the European Union.
In the future, the production of Cobalt, Nickel and Lithium will increase considerably due to the increase in the demand of these materials for batteries, as it is shown in Figure 19. As a result, by 2025, 60% of the production of Cobalt and 70% of the Lithium one will be intended for batteries. As the production increases in order to meet the increasingly demand of batteries for electromobility and stationary applications, the unitary cost will observe a decreasing trend.
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Figure 18: Mine production and potential of battery raw materials, [12]
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4.3 Battery cells
The raw materials mentioned before are used to manufacture cell batteries, which will later be assembled together to form packs or battery modules.
The cost trend for battery cells in the recent years can be seen in Figure 20. In addition, the future cost of a complete battery pack can be seen in Figure 21. The cost of the battery cells will follow the same trend as in Figure 20.
Figure 20: Lithium-ion battery prices: pack and cell split, [13]
Figure 21: Lithium-ion battery price outlook, [13]
Table 3 shows the main producers of battery cells worldwide. However, as it has been said before, it is very difficult to stablish the limits between producing cells, packs or the whole battery module. Companies are starting to integrate in their processes the production of batteries, from the raw materials to the final product.
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Company Country
Panasonic Japan
BYD China
LG Chem South Korea
CATL China
Samsung SDI South Korea
GS Yuasa Japan
A123 Systems United States
Table 3: Battery cell producers worldwide
Regarding the market structure, almost all the production of cells worldwide occurs in Asia, being Japan, South Korea and China the leaders of this industry. This leadership is driven by the automotive industry which has positioned in favor of the electromobility as the future of it. In addition, Asia has been investing in technology development and research which has favored the appearance of the technological companies that now lead the battery cell market.
4.4 Battery modules
Nowadays, Lithium-ion batteries are being produced mainly to meet the demand from the automotive sector and to supply stationary applications. Due to the different characteristics of each industry, the manufacturers do not usually supply both sectors. In the electromobility industry, the main leaders are Asian companies. However, it is important to mention the company Tesla, from the United States. Tesla is by far the leader of the American market, and it is already introducing itself into the Asian one. A new Gigafactory, which will allow Tesla to produce its Model 3 in Shanghai, is currently being built and will be finished by the end of 2019 [14].
From the utility-scale point of view, battery producers usually act as distributors as well. However, the figure of a distribution company which buys the batteries and installs them in the clients site is not dismissed. The great leader in this sector is the before mentioned company Tesla, which does not only produce electric cars but batteries solutions. When you purchase a Tesla battery pack, the company provides you with the installation service as well as customer support services. In addition, it might be interesting to study how the market will evolve, as customers will increasingly demand these products to their utilities. Utilities should be aware of this market trends to not lose the opportunity to become battery distributors and position themselves as leaders in this new market.
It is important to mention that although Europe is not currently a leader in the production of batteries, it is trying to position itself as a leader region in which they believe it will be the next revolution. France and Germany have created an alliance in which they will invest 700 millions and 1000 millions euros respectively until 2022 to produce batteries. Their ambition is that these factories will produce batteries to cover between 20% and 30% of the worldwide demand in 2030 [15].
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4.5 Final consumer applications
Although the great majority of battery suppliers are located in Asia, the final consumers of this solutions are located in Europe and the US.
The trend of storage deployment worldwide can be observed in Figure 22. The estimation presents a great increase of storage projects at utility scale. Moreover, according to Lazard [7], the key issues for the increasing in this trend might be explicit policies, performance-based incentives and favorable market fundamentals.
Figure 22: Annual global storage deployments, Bloomberg
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As it can be seen in Figure 23, the development of utility-scale applications is greatly affected by the regulation present in every system. California has developed a target policy fixing objectives of 1325 MW installed for 2020. Also, it has provided subsidies of $45M for battery deployments.
In Europe, France and Germany are the great leaders of battery storage. France has developed the “EDF Plan de Stockage Electrique” which aims to implement 10 GW more of storage by 2035 around the world [16].
Regarding the automotive sector, the sale of electric vehicles is surprisingly high in the Nordic countries of Europe, especially in Norway. However, in absolute terms, the leading countries are China and the United States, as it can be seen in Figure 24.
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5 Regulation policies
The objective of this section is to analyze the regulatory framework around battery storage according to some key issues. Within each regulatory aspect, the main barriers and good practices found will be explained as well as the influence they might have on the business models that will be developed later in the next section.
5.1 Market design
In the European Union, the electricity sector is currently regulated by the Electricity Directive (Directive 2009/72/EC) and the Renewable Energy Directive (Directive 2009/28/EC) among others. These directives include definitions for generation, transmission, distribution and supply but not for the term energy storage. The European regulation includes energy storage as a generation asset and not as a separate component of the electricity production value chain. The absence of a definition for energy storage is considered a great barrier for the introduction of these technologies. The characteristics of storage are quite different to the generation assets so comparing them from a regulatory perspective represents a lack of competitiveness. The definition of storage is the first step for presenting the rules that would regulate the participation of these assets in the energy markets or the services they can provide for system operation.
Recently, the European Commission has included a definition of energy storage in the new “Clean Energy for All Europeans” proposals, as it is stated in 2.1 . However, energy storage still is considered as a generation asset, which can be considered a barrier since the characteristics are not the same. While generation power plants only produce electricity, storage assets need to consume it, charge, and produce it later, discharge. In the short term, this charging and discharging process presents a problem in the day-ahead market. Energy storage operators submit complex bids for the purchase of energy when the prices are low and the sale of it when prices are higher. These bids consist on linked block orders to make sure that the asset will not be committed for an infeasible operation point. In addition, these orders include a minimum income condition so that the selling order compensates the purchase one and generates a profit. Although it may seem a great solution for the operation of energy storage assets, this bidding format does not optimize the operation of them since the operators must forecast beforehand in which periods place the orders. This situation presents a risk on the volatility of prices that makes revenue streams difficult to predict, therefore moving away investors.
In the long term, storage assets should be allowed to participate in the Capacity Remuneration Mechanisms, as it happens in the US. According to the FERC Order 841 [17], batteries are allowed to de-rate their capacity to meet duration requirements. In California or New York, the required time for participating in the capacity markets is 4 hours, so a 1 MW/ 1 MWh battery should bid 0,25 MW to fulfill this requirement. Small resources are also allowed to participate in these markets through aggregation, to avoid penalties for underperformance.
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5.2 Ownership
The ownership of energy storage assets is considered to be a hot topic in the regulation of several power systems. While in the European Union the ownership of storage is forbidden to regulated entities for unbundling reasons, in the US it is allowed.
Energy storage facilities may provide network services as frequency regulation or congestion management in a more efficient way than generation assets currently due. Some storage technologies present faster response times than generation plants which make them ideal solutions for frequency regulation. However, system operators owning these assets should not be allowed to operate them since they may obtain benefits from the free markets.
TSOs and DSOs are considered as natural monopolies and therefore, their allowed revenues are regulated by the regulatory authority. Allowing these entities to participate in the markets is considered as an abuse of dominant position since they are monopolies. According to the new directive on market design of the Clean Energy Package [18], released on June 2019:
“Distribution system operators shall not own, develop, manage or operate energy storage facilities.”
Only in exceptional situations, in which no other market party is interested in providing a storage service or cannot deliver it at a reasonable cost, and these facilities are necessary for the DSOs to fulfill their obligations and the regulatory authority has approved it, the system operators are allowed to invest in storage facilities. In these cases, the regulatory authorities should periodically reassess the interest of market parties involved in that activity.
The ownership issue is presented as a barrier for the development of storage facilities because the full potential of these technologies is lost. The regulatory challenge is to guarantee that storage assets can create value by participating in the energy markets and by providing services to the system operator. A solution for this problem might be the business model known as local markets [19].
Since system operators are not allowed to own and operate storage facilities, this business model defends the possibility of hiring network services from private owned storage assets. The owner of the facility could provide network services to the TSO or DSO and also, participate in the energy markets every time it is not committed by the system operators.
This solution is well defined especially for distribution grids, in which the location of the assets is critical for improving quality of supply and congestion management. In addition, this business model would introduce a great number of small players into the market improving competition and transparency in a local area.
5.3 Network Codes
As explained before, currently storage assets are treated as generation assets although their technical characteristics differ considerably. The main difference between these two technologies is the decoupling between power and energy production. Currently, the cost of battery storage for power applications is low, but for energy applications is very expensive. In this context, batteries are considered a great solution for fast response situations, as frequency regulation, but not so great for continuous energy ones.
The Network Codes dictate the technical standards that facilities participating in the market have to comply with in order to operate in the market. Although storage is allowed to participate in the markets, these rules are defined for generation plants and loads.
